Which type of lending is associated with increased scrutiny during borrower defaults?

Retail lending is associated with increased scrutiny during borrower defaults primarily due to the regulatory framework and compliance obligations that govern this type of lending. Retail lenders, such as banks and credit unions, are subject to a range of federal and state regulations, including the Truth in Lending Act, which mandates clear disclosures of loan terms and interest rates. During a borrower default, these institutions are more likely to perform detailed assessments of the borrower’s financial situation, loan performance, and compliance with lending regulations.

Additionally, retail lenders generally have established protocols for managing defaults, which often include risk assessment processes that evaluate the borrower's payment history, creditworthiness, and the overall economic circumstances that could impact the repayment of the loan. The heightened level of scrutiny reflects not only the obligation to protect consumer rights but also the responsibility to maintain financial stability and mitigate losses to the lending institution.

Other types of lending, such as online lending, hard money lending, and peer-to-peer lending, may not involve the same level of regulatory scrutiny or systematic compliance requirements, which can lead to different approaches in handling defaults.